Bailout for Bullies

It has taken a frightening flirtation with global economic collapse, but even George W. Bush seems to have exhausted his blind faith in the almighty market. "I'm sure there are some of my friends out there saying, I thought this guy was a market guy; what happened to him?" the president posited last weekend—while proposing a history-making $700 billion Wall Street bailout.

Perhaps Bush's sudden unease with unfettered competition is due to the fact that any Texas gambler worth his hat knows when to fold 'em. More likely, however, is that his fealty to market forces has never been as genuine as his dedication to an unrelenting, by-any-means-necessary fight to consolidate America's wealth into the hands of a few. Yesterday's weapon was a rule-free, wild-ride investing of other people's money; today's is a naked shoveling of no-strings-attached, public cash into private hands.

It seems self-evident at this point that government must intervene to contain the global disaster Wall Street's recklessness has spawned. But as it does so, we should all finally demand something for the resources we turn over. Over the past eight years, we've watched as the top 1 percent have accumulated more wealth than the bottom 90 percent. They've exploited our willingness to work hard and kept the profits to themselves. They've conned us out of millions in home equity and squandered it in risky investment schemes. And now they want to keep the game going with our tax dollars. Enough is enough.

The plan the administration has put on the table, if you've somehow missed it, is both straightforward and sweeping. It gives the Treasury Secretary expansive authority to buy up to $700 billion in bad debt from banks who are in trouble because they played too fast and too loose in the mortgage market. The administration's opening proposal asked nothing in return for this massive buyout—no shares of the companies, no new limits on their willingness to take similar risks in the future, and no limits on their profit-taking or the size of their executive compensation packages. Only after both Democrats and Republicans complained did the administration tentatively agree to any independent oversight of the secretary's discretion in what companies get bought out.

That's a bad deal on its face. But when you consider the broader context, it's hard to see it as anything but collusion against the rest of us.

Take the mortgage crisis that started all this mess. Industry and administration spin aside, it began with banks' and lenders' predation. They saw what appeared to be certain, massive profit in trading bundled mortgages in the securities market. So they used every dirty trick they could dream up to artificially crank up mortgage lending. They steered people who qualified for prime loans into more profitable subprime ones, the majority of which were refinances of existing loans. They came up with a bevy of bizarre products to trick people into taking out loans they couldn't afford. They aggressively beat back state-level laws that presciently tried to rein it all in. And then, they cynically targeted credit-starved black and Latino borrowers, who will collectively lose $164 billion to $213 billion in subsequent foreclosures, according to one study.

Everybody from mortgage brokers to banks to investors got fat pockets in the game. Everybody except working Americans who were the ones anteing up; the most recent estimates say 6.5 million of them still stand to lose their homes before the foreclosure dust settles. We're all now going to have to absorb hundreds of billions of dollars in Wall Street losses as well, in order to keep the global economic system standing.

Similar waves of exploitation appear to have been rippling through the labor market as well during the Bush era. American workers increased productivity—or, the amount of goods and services generated per hours worked—by nearly 20 percent between 2000 and 2007, according to an Economic Policy Institute paper. Traditionally, increased productivity means increased wages, too. But over the span of the Bush era, the median weekly wage for American workers declined by a buck.

The picture is even starker when looking at black people in particular, who lost $3.00 in median weekly wages. That loss was driven by the economic pummeling black men have taken under Bush. We made $22 less per week in 2007 than we did in 2000, according to the study.

So what's happening to all the wealth that's presumably been generated by our hard, efficient work? "While the middle class collapses, the richest people in this country have made out like bandits and have not had it so good since the 1920s," writes Vermont Sen. Bernie Sanders, in an op-ed respondingto the Bush bailout plan. "The wealthiest 400 people in our country saw their wealth increase by $670 billion while Bush has been president."

Sanders is among the lawmakers who have said they will not, this time, cower to Bush's bullying and rubber stamp his proposal.

The administration is in high gear on a tactic that has proven terribly effective in the past—jump into a massive, growing crisis with a proposal for rapid expansion of executive power, then dismiss as reckless anyone who says slow down. Hopefully, Congress will heed Sen. Patrick Leahy's warning: "If we learned anything from right after 9/11, it's that the biggest mistake is to pass anything they ask for just because it's an emergency."

Democrats are wisely demanding some return on the bailout investment. Most importantly, they want the government to not just save the banks, but to fix the foreclosure crisis they created. For months, the administration has told homeowners who are struggling to get out from under bad loans that they must depend upon the mercy of the predatory lenders who suckered them in the first place. But if taxpayers are going to foot the bill for Wall Street's bad bets, we ought to also help our neighbors keep their homes by ending the carve-out that prevents bankruptcy judges from adjusting the terms of home loans.

And although it's in our own best interest to let the reckless bankers off the hook—lest they take the whole world down with them—it does us no good to ignore the excesses that led us to that unpleasant reality. When we bail a company out, we should also be able to limit the amount of profits its executives take home, particularly those that come from incentives to take the sort of risks that caused the problem.

Perhaps most of all, by no means can we afford to give the Bush administration—or any administration, for that matter—unchecked power to toy around with the financial system as it sees fit. We created a government with checks and balances because it not only restricts the corrupting influence of power, but because it facilitates the sort of vigorous debate and open exchange of ideas that creates sound public policy. The administration's disdain for that process should frighten us as much as any of the horrors the market has served up so far.